Sales tax on deliveries: More states to follow Colorado

Call it a sales tax or a delivery fee of 27 cents. Just don’t call Colorado the only state implementing or considering such a surcharge on online sales: New York lawmakers will soon debate their own and Minnesota’s kicks in next year.

Retailers, online marketplaces, and services must now charge the delivery fee if an order will be delivered to a Colorado address using a motor vehicle and includes at least one item subject to the state sales or use tax. Proponents said it brings in extra revenue and helps pay to mitigate the effect that deliveries have environmentally.

Opponents, including many in the business community, didn’t take long to call the fee a tax that they had to absorb to avoid losing customers. Their cry was so loud that Colorado is exempting retailers whose sales of tangible personal property, commodities, or services in the state in the previous year totaled $500,000 or less. Beginning this July 1, retailers can pay the retail delivery fee on behalf of their customers without separately stating the fee amount on a receipt or invoice or collecting it directly from the customer.

The retail delivery fee does go up a penny this July.

Buddy, can you spare a quarter?

If S.B. S5895 in Albany becomes law it will, starting next year, add a 25-cent surcharge to online sales delivered into the city.

Citing emission concerns similar to Colorado, proponents in New York say 90% of goods are moved into and out of the city by truck – which have tailpipe emissions and wear down infrastructure. Reportedly, New York wants to shift freight from roads to rail, water, and other modes of transportation, but must first improve its infrastructure.

And last month, Minnesota enacted legislation for a 50-cent retail delivery fee, effective July 1, 2024.

The Minnesota legislation resembles Colorado’s in self-accruing the delivery fee tax and exempting small sellers and will entail similar complexities as well, such as determining when exemptions apply, seeking to achieve compliance on marketplace sales, and invoicing for the fee (if so elected). Minnesota lawmakers had proposed a 75-cent fee.

A “retail delivery” in Minnesota is a delivery to a person in the state of the following as part of a retail sale: (1) taxable tangible personal property and (2) clothing (except cloth and disposable child and adult diapers); the per-order threshold is $100 before state and local sales and use taxes and excluding exempt items. The fee applies regardless of the number of shipments necessary to deliver the items of tangible personal property purchased or the number of items of tangible personal property purchased. The retail delivery fee does not apply to pickups at the retailer’s place of business, including curbside delivery.

An exemption applies if the retailer made sales totaling less than $1 million in the previous calendar year and a marketplace provider when facilitating the sale of a retailer that made retail sales totaling less than $100,000 in the previous calendar year through the marketplace provider. There are other exemptions.

The Minnesota legislation does not require delivery via a motor vehicle and so can include electronic delivery, among others. This might open the door to other states trying such a fee for many reasons beyond just the environment.

Contact us to find out if your business could be impacted by changing sales tax laws and to help alleviate your burden of sales tax compliance.